Similarly, Saeb Erekat, secretary-general of the Palestine Liberation Organisation, said that the law amounted to "piracy and theft".

In March, Israeli Prime Minister Benjamin Netanyahu praised the US government for passing a law that suspended some financial aid to the Palestinians over the stipends paid to families of Palestinians killed or jailed in fighting with Israel.

Israeli Prime Minister Benjamin Netanyahu has repeatedly demanded that the Palestinians, who view prisoners as national heroes, stop paying stipends to them and their families. The P.A. budget this year is NIS 18.5 billion ($5.2 billion).

The law, known as the "Taylor Force Act", is named after a United States military veteran and graduate student who was killed in a 2016 attack while he was visiting Israel.

Israeli occupying forces on Monday shot and killed a Palestinian and wounded another, who were part of a group of four that broke through the Gaza border into Israel, and tried to torch an army sniper position, the military said.

Israeli Defence Minister Avigdor Lieberman hailed the passing of the new law, saying: "Every shekel (president) Mahmud Abbas will pay for terrorists and assassins will be automatically withdrawn from the Palestinian Authority's budget".

The Western-backed Palestinian Authority headed by President Mahmoud Abbas has limited self-rule in the occupied West Bank where Israel retains overall security control.

Israel says the payments are a reward and encouragement for the prisoners' actions against it but the Palestinians say they are welfare payments to support them and their families.

It is also facing what is sees as blatant bias from Trump's administration and froze relations with the White House after it recognised Jerusalem as Israel's capital a year ago.

Israel accuses Gaza's Islamist rulers Hamas of using the protests as an excuse to carry out attacks. He added that it is necessary to find an economic solution for both the West Bank and the Gaza Strip, and eventually end the Palestinian struggle for independence.